A sale of shares by its co-founders, staff and early investors values London-based fintech TransferWise at $3.5 billion, making it the sector’s most valuable European company. TransferWise started off as a currency exchange and transfer platform, undercutting the fees and exchange rates of traditional providers, but has now also obtained a banking license and offers many of the services that high street banks do.
The company’s two co-founders, Taavet Hinrikus and Kristo Kaarmann are both Estonian. TransferWise’s ‘story’ is that the pair started the fintech as a response to the high fees and poor exchange rates they personally contended with when making transfers back home to Estonia while working in London. Their combined wealth is already estimated at close to £500 million and will be further boosted by the sale of part of their remaining stakes. It is being reported that both are selling off a little under 20% of their shares as part of the deal.
The sale of shares by TransferWise’s founders, key early staff and investors could be interpreted negatively but Mr Hinrikus insists that it is instead a move designed to relieve any pressure on the company to move towards an IPO.
With TransferWise having approximately doubled in value since its last major investment round 18 months ago, the current share sale allows early investors to make a significant return while still retaining equity stakes. This should mean they don’t start to become impatient for an IPO, allowing TransferWise to develop further outside of the pressure of public markets.
TransferWise’s core business is still cross-border payments and currency exchange, which it is able to offer more cheaply by matching flows going in opposite directions, thereby cutting out middlemen and the need to actually transfer most payments. About £4 billion of transactions are now processed every month by the fintech, which has also introduced cross-border bank accounts and other small business services.
Crucial to the company’s preference to delay an IPO, which the company’s management does say it eventually sees happening when the time is right, is that TransferWise is a rare example of a high profile fintech that is actually already profitable. A net profit of £6.2 million was recorded for the year ending March 2018 on revenues of £117 million. What profits were for the financial year recently ended is not yet known but statements made by the company suggest another year in the black.
The company’s investors believe regulatory changes in the EU such as open banking, as well as movements elsewhere internationally, such as Australia, to make foreign exchange rates more transparent, play into TransferWise’s hands. Nimay Mehta, general partner at Lead Edge, an investor in the fintech and also a backer of other tech unicorns such as Uber and Spotify, commented for the Financial Times:
“the opportunity for TransferWise is set to grow exponentially”, pointing to recent regulatory changes in the EU and proposals in Australia to force more transparency in foreign exchange fees”.